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C.H. Robinson Worldwide (CHRW) |
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WIKI ANALYSIS
C.H. Robinson (NASDAQ:CHRW) transports goods using third-party trucks, planes, ships, and railcars. Holding contracts with 45,000 transportation companies, C.H. Robinson ships over 7.5 million packages for approximately 35,000 customers.[1] The company earned $7.6 billion in revenue and $360 million in net income in 2009.[2]
Unlike trucking firms such as YRC Worldwide (YRCW) and Conway Inc (CNW), C.H. Robinson does not use company-owned trucks to move goods for customers. Instead, employees in any of the firm's 200+ branch offices contract with third-party trucks to move food and beverage, manufacturing, and retail goods. The transportation of goods is roughly 88% of gross profits; the balance of revenues come from distributing fresh produce, and its T-Chek Service Unit which provides management services to the trucking industry.
C.H. Robinson's non-asset based model saves money, as it does not need to purchase its own expensive trucks, planes, or ships. The company can choose from a variety of carriers to move goods, and it can adjust its shipping capacity by controlling the number of third-party contracts which it enters. This protects it against lower trucking usage in the event of a recession - when companies ship less in response to lower consumer spending, CHRW adjusts its capacity to meet lower shipping demand. While the company is not as vulnerable to an economic recession as asset-based trucking firms, total volume decline in shipments still hurts profits. Also, by not operating its own transportation equipment, C.H. Robinson depends on securing third-party services to make money, an additional risk factor that asset-based firms do not deal with.
Company Overview
C.H. Robinson generates profit by moving goods, buying and selling produce, and providing information services to the trucking industry. Customers vary from family-owned stores to large Fortune 100 companies. No customer accounts for more than 7% of total revenue.[3] CHRW facilitates movement of goods primarily by acting as a middle-man between shipping customers and third-party transportation carriers. C.H. Robinson will charge customers higher rates (which depend on volume and weight) than it negotiates with its network of third-party transportation companies - this is the source of its operating margin.
Transporting Goods
C.H. Robinson makes most of its money by moving goods. The salespeople of C.H. Robinson build relationships with the customers whose goods C.H. Robinson moves, as well as the carriers that do the transportation. CHRW charges shipping customers to move their goods, and then pays carriers at spot-market rates to move the product (the difference is profit). The 200+ branch offices allow management of C.H. Robinson to assess local market conditions and build face-to-face business relationships.[4] This business model relies heavily on salespeople who can solicit and manage customers, and C.H. Robinson attracts this talent using performance-oriented compensation to reward salespeople - compensation is the company's largest expense. The performance-oriented pay can help lower expense in weak U.S. Economic Cycles. The company's revenues in terms of transportation mode are as follows:
- Truck - 86% of net sales
- Intermodal - 2.9% of net sales
- Ocean - 4.5% of net sales
- Air - 2.7% of net sales
- Other Logistics Services - 3.7% of net sales
Fresh Produce Sourcing
C.H. Robinson actively buys produce from farmers and then arranges specialized transportation of the fruits and vegetables to food wholesalers, grocery stores, and restaurant chains. C.H. Robinson provides clients with quality control from store-to-store and region-to-region. In addition, C.H. Robinson markets its own brand 'Fresh 1', which has expanded its relationship with retail customers. C.H. Robinson profits when it can sell the produce for more than it cost to buy and move the produce to the customer.[5]
Information Services
T-Chek Inc, a subsidiary of C.H. Robinson, offers motor carriers and truck stops fuel management, driver payroll, and other related services. Using C.H. Robinson proprietary system, customers can tract equipment, manage fleets, and dictate where and when a truck can stop for fuel for a fee. T-Chek also captures fuel and cost data, and customers pay for access to the information.[6]
Business Growth
FY 2009 (ended December 31, 2009)[2]
- Net revenue fell 11.7% to $7.6 billion. Total transportation revenues decline 16.2% and total purchased transportaiont services fell by 19.4%. The company attributes the decline to a weak economy and rising fuel prices.
- Net income increased by less than 1% to $360 million.
Trends and Forces
- Movement to full-service transportation services: Transportation companies are increasingly implementing and expanding a logistics arm to complement their existing transportation business. YRC Worldwide (YRCW) uses its subsidiary YRC Logistics, and likewise Conway Inc (CNW) uses its Menlo Logistics branch. C.H. Robinson depends on buying available cargo space from third-party carriers, but these carriers are increasingly funneling business to themselves through their own logistic branches. This cuts out the middle man (CHRW) and results in a more competitive environment for C.H. Robinson.
- Sensitivity to Economic Conditions: A slowing U.S. Economy results in lower shipping tonnage, leading to lower prices. This on one hand benefits CHRW because it pays lower rates to third-party carriers, but on the other hand it forces the company to charge lower rates to shipping customers. In addition, overall reduction in freight volume from customers (particularly food, beverage, paper, or printing industries) translates to less revenue being generated.
- Dependency on Third-Party Equipment and Services: C.H. Robinson does not own the trucks, ships, planes, or railcars that it uses to transport goods. The company agrees to ships goods and contracts out the work. While C.H. Robinson uses over 45,000 carriers, most of which are smaller companies, disruption of or lack of access to carriers could impact shipments of C.H. Robinson's customers. Subsequently, customers may opt to temporarily or permanently use another transportation company.[7]
- Fresh Produce Risks: The Sourcing segment of C.H. Robinson is exposed to a few risks. Should the supply of fresh produce decline, it may be difficult and/or costly for C.H. Robinson to deliver produce to its customers. Moreover, should any recall or allegation of contamination arise, C.H. Robinson would likely be responsible to remove, transport, and destroy the crop. Its brand image, especially Fresh 1, may be tarnished and result in a decrease in sales. The company is insured up to $100 million for product liability claims.[8]
- Attracting and Retaining Employees: Employee growth and retention is important for the expansion of C.H. Robinson (worker compensation is its largest expense). The company's non-asset based model depends on autonomous offices that build strong relationships with local customers and carriers. C.H. Robinson plans to increase branch offices and needs qualified salespeople and logistic managers to run successful businesses. In addition, the technology staff, which develops the proprietary information systems, must be able to adapt the system to customer's needs.
Competition
C.H. Robinson competes with a large number of non-asset and asset based freight service and logistic firms, third party freight brokers, and freight forwarders. Asset based logistic companies, which own transportation vehicles, include YRC Worldwide (YRCW) and Conway Inc (CNW). Non-asset logistics, like C.H. Robinson, do not own ships, planes, or trucks, and include Expeditors International of Washington (EXPD), UTi Worldwide (UTIW), and Pacer International (PACR). These firms compete for shipping orders and logistic management from customers primarily based on price, reliability, and breadth of services available.
References
- ↑ CHRW 2009 10-K pg. 3
- ↑ 2.0 2.1 CHRW 2009 10-K "Selected Financial Data" pg. 20
- ↑ CHRW 2009 10-K "Customers and Marketing" pg. 9
- ↑ CHRW 2009 10-K "Branch Network" pg. 7-8
- ↑ CHRW 2009 10-K "Sourcing" pg. 6
- ↑ CHRW 2009 10-K "Information Services" pg. 6
- ↑ CHRW 2009 10-K "We depend on others to provide equipment and services" pg. 13
- ↑ CHRW 2009 10-K pg. 14-15
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